Lawsuits ensure Empire Zone saga will end in courts

The state finished shrinking its signature business tax credit program this month, kicking out 400 firms receiving $47 million a year.

Still, the controversial cuts amount to barely half of the target legislators set in the state budget when they implemented new standards for the Empire Zone program. The shortfall will add to the state’s $8.2 billion deficit.

Business lobbies continue to warn the review has created a dangerous, unsettling precedent for companies thinking about operating in New York.

The courts will influence any long-term impact, as the state is already defending 28 lawsuits over the process. The state is pressing on with much smaller, targeted tax credits, no longer allowing firms into the Empire Zone program.

“This action, to me, says to businesses: We don’t want you, you shouldn’t be here and we don’t care how hard you’ve worked to expand,” said Kevin McAuliffe, an attorney with Hiscock & Barclay who represents some Empire Zone recipients.

Empire Zones were created 25 years ago with the aim of spurring development in poorer, urban areas. Companies received a range of tax credits—totaling as much as $600 million a year—in exchange for pledges to create jobs.

Critics have attacked the program as wasteful corporate welfare, citing instances where companies consumed tax credits while creating few jobs in return.

“For crying out loud—if these were welfare mothers they’d be taken away in handcuffs,” said Assemblyman Richard Brodsky, a Democrat from Westchester County who pushed for the changes.

“The big victory here was the acceptance of a principle that never should have been in contention: When private parties receive public dollars, they should be held accountable. It’s so obvious,” Brodsky said.

Last year, Democratic legislators set new mandatory job-creation standards and demanded a review of benefits for 8,500 Empire Zone companies.

In June 2009, the state booted 545 companies from the program for failing to meet the new rules. Three of every four appealed.

For 15 months, a state board sifted through roughly 50,000 pages of appeals and ruled on whether to reinstate the companies. Companies under review did not receive their 2008 or 2009 benefits during that time, contributing to a cash flow crunch at many firms.

The process ended Oct. 15, when the board voted on the final appeals. Three of the seven board members were absent from the meeting.

In the appeals process, the board ended up keeping most of the major Capital Region companies in the program. That includes big developer Galesi Group and builder BBL Construction Services, and tenants at five industrial or office parks.

“We tried to implement the legislation as best we could. This was a very difficult, and at times unclear, process,” said Mario Musolino, a board member and the No. 2 official at the Department of Labor.

Democrats defended the effort to reduce the Empire Zone program.

Brodsky said he supports incentives for specific sectors, such as manufacturing and financial services—but not before firms finish what they promised to do.

“This process wasn’t frivolous. I don’t think anybody was harmed,” Brodsky said. “If they [companies] were a part of it, it was because there was evidence that needed to be investigated.

“I often hear from the same business publications crying out for a reduction in state spending, but how are they appalled when people are actually held accountable for their promises? They can’t have it both ways,” he added. “People out there are yelling, ‘Let’s cut pension benefits.’ OK ... what about resources being handed out for no sound public benefit? It has to stop.”

Alan Ginsberg pleaded his case before the board. He built TechCity Properties Inc., an industrial park in Kingston located on land IBM vacated 15 years ago.

Ginsberg fought to keep his $1.5 million in annual benefits; his tenants have 2,500 workers. But the board ruled 4-0 that he did not have sufficient proof that he complied with the rules.

“It is my heart and passion. I work my [butt] off,” Ginsberg said.

“I beg, passionately, for your help. I’m not your bad guy,” he added. “The signal this will send will be devastating.”